XML 54 R16.htm IDEA: XBRL DOCUMENT v2.4.0.6
Derivative Financial Instruments
 6 Months Ended
Jun. 30, 2012
Derivative Financial Instruments [Abstract]  
DERIVATIVE FINANCIAL INSTRUMENTS
9. DERIVATIVE FINANCIAL INSTRUMENTS

The Bank is exposed to certain risks relating to its ongoing business operations and utilizes interest rate swap agreements (“swaps”) as part of its asset liability management strategy to help manage its interest rate risk position. As of June 30, 2012, the Bank entered into 82 interest-rate swap agreements with customers and 82 with a counterparty bank. The swaps are not designated as hedging instruments. The purpose of entering into offsetting derivatives not designated as a hedging instrument is to provide the Bank a variable-rate loan receivable and provide the customer the financial effects of a fixed-rate loan without creating volatility in the Bank’s earnings.

The structure of the swaps is as follows. The Bank enters into a swap with its customers to allow them to convert variable rate loans to fixed rate loans, and at the same time, the Bank enters into a swap with the counterparty bank to allow the Bank to pass on the interest-rate risk associated with fixed rate loans. The net effect of the transaction allows the Bank to receive interest on the loan from the customer at a variable rate based on LIBOR plus a spread. The changes in the fair value of the swaps primarily offset each other and therefore do not have a significant impact on the Company’s results of operations.

We believe our risk of loss associated with our counterparty borrowers related to interest rate swaps is mitigated as the loans with swaps are underwritten to take into account potential additional exposure.

 

As of June 30, 2012, the total notional amount of the Company’s swaps was $226.2 million. The location of the asset and liability and the amount of gain recognized as of June 30, 2012 and December 31, 2011, and for the six months ended June 30, 2012 and 2011 are presented as follows:

Fair Value of Derivative Instruments

 

                                 
    Asset Derivatives     Liability Derivatives  
    (Dollars in thousands)  

Derivatives Not Designated as Hedging Instruments

   Balance Sheet Location     Fair Value     Balance Sheet Location     Fair Value  
    June 30, 2012     June 30, 2012  
         

Interest rate swaps

     Other Assets     $ 24,663       Other Liabilities     $ 24,663  
           

 

 

            

 

 

  
         

Total derivatives

           $ 24,663             $ 24,663  
           

 

 

            

 

 

  
   
   

 

  
    December 31, 2011     December 31, 2011  
         

Interest rate swaps

     Other Assets     $ 20,497       Other Liabilities     $ 20,497  
           

 

 

            

 

 

  
         

Total derivatives

           $ 20,497             $ 20,497  
           

 

 

            

 

 

  

The Effect of Derivative Instruments on the Consolidated Statements of Earnings for the Three and Six

Months Ended June 30, 2012 and 2011

(Dollars in thousands)

 

                                         

Derivatives Not Designated as Hedging Instruments

   Location of Gain Recognized in
Income on Derivative		     For the Three Months Ended
June 30,		     For the Six Months Ended
June 30,		  
          2012     2011     2012     2011  
           

Interest rate swaps

     Other income     $ 189     $ 47     $ 692     $ 148  
           

 

 

    

 

 

    

 

 

    

 

 

  

Total

           $ 189     $ 47     $ 692     $ 148